Japanese Prime Minister Shinzo Abe in a speech to American business leaders in New York on September 19 said this: “Japan and the US must each obtain domestic approval of the TPP as soon as possible. Success or failure will sway the direction of the global free trade system, and the strategic environment in the Asia-Pacific.”
His words echo those of other Asian government signatories to the 12-nation free trade pact known as the Trans-Pacific Partnership. For instance, in August, Singapore’s leader Lee Hsien Loong on his trip to the US similarly urged for ratification of the TPP, citing not only the benefits of open rather than protected trading systems for the overall global economy but also specific advantages for American consumers and manufacturers through the TPP: “Improved market access will mean cheaper products for consumers and more exports for manufacturers. Strong standards will support innovation and benefit many US technology giants.”
Logistics service providers are also keenly anticipating the trade-boosting impact of the TPP: “An exciting development for the Asia Pacific region, creating more opportunities for companies to find new customers.” (UPS); “Trade volumes through Singapore will increase, which will be to the benefit of Singapore logistics companies.” (BDP International); “Among the new trade issues which are included in the TPP are e-commerce. This will particularly benefit SMEs to trade more internationally.” (DHL).
Largest Trade Pact in History
With the 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA, Vietnam) in the TPP constituting a market of 800 million people, a GDP of $30 trillion (40 percent of the world’s entire GDP), and representing one-third of global trade, the Trans-Pacific Partnership is the largest trade pact in history. After many years of rather intense negotiations the TPP was formally signed on February 4 this year, which means its form and contents are complete and not subject to any further discussions or amendments. (The legally verified text of the Trans-Pacific Partnership, all 30 chapters of it, can be downloaded here.)
However, for TPP supporters the champagne is still on ice. In order to come into force and be legally binding, it requires ratification by either all 12 domestic legislatures of the signatory countries, or at least six countries that between them represent at least 85 percent of the combined 12-country GDP. In effect, what that means is that the TPP will not pass the final hurdle if either Japan and US fail to ratify the agreement. And where the US is concerned, you only need to be a casual observer of the American presidential election to know being a supporter of the TPP in 2016 is tantamount to making a pact with the devil, such is the hostility to it on the campaign trial.
Making a link between the TPP and to cheap imports and the destruction of jobs for American workers, Donald Trump went so a far as to call the TPP “the rape of our country.” And while Democrat nominee Hillary Clinton lauded the TPP as the “gold standard” in trade agreements as recently as November 2012, when she was Secretary of State, her take on it now as a presidential candidate is somewhat changed: “I oppose it now, I’ll oppose it after the election, and I’ll oppose it as president.”
As for President Obama, he says he remains “committed” to the TPP, but the chances of it being pushed through Congress during his remaining months in office appear slim. That means after so many years of work and negotiations, the TPP may never even see the light of day, and hence the concerns here in Asia, where there is broad support for the trade pact and worries about what TPP failure may mean not just for the regional economies but also future US involvement in Asia.
Beyond Economics: The Geopolitical Context
While the TPP is essentially an economic construct, there is a geopolitical context that cannot be ignored. Here we’re talking about the rise of China and Obama’s consequent “pivot to Asia” foreign policy move, which is largely aimed at moderating China’s influence over the Asia Pacific region.
China is not a signatory to the TPP but is a proponent of another trade agreement that is currently in the works – the Regional Comprehensive Economic Partnership (RCEP). With China and India on board and included in the 16-country pact, which has yet to be finalized, the RCEP is far more Asia centric than the TPP and does not involve the US.
The RCEP is more of a traditional FTA, with a concentration on tariffs and rules of origin, whereas the more ambitious TPP, which as well as eliminating tariffs across a much broader range of products and services than any trade agreement thus far, also encompasses aspects like labor protection, sustainable practices, intellectual property, and the digital economy.
The unease amongst Asian TPP signatories over an American abandonment of the TPP is at least partly linked to fears of a much more disengaged US presence in Asia Pacific. A TPP ratified and in place, however, would signal a US bolstering its political and military connections to the region with strong economic ties.
TPP: Good or Bad?
So to what extent will the TPP impact the participating countries and how will any gains be distributed? A study, The Economic Effects of the Trans-Pacific Partnership (January 2016), from the Peterson Institute for International Economics does forecast larger gains for the Asian signatories versus those from the Americas. For example, by 2025, real income, as expressed by percentage of 2105 GDP, will increase by 5.8 percent in Vietnam, 5 percent in Malaysia, and 1.9 percent in Singapore versus 0.9 percent in Canada, 0.6 percent in Mexico, and 0.4 percent in the US, as a direct result of the TPP.
Other studies that also predict positive gains for TPP members include those from the World Bank ̶ GDP to rise by an average of 1.1 percent and trade by 11 percent by 2030, and the US International Trade Commission ̶ by 2032 in the US, 128,000 more full-time jobs and annual real income to rise by 0.23 percent.
And given concerns raised over the potential job-killing effects of the TPP, it’s worth noting that the National Association of Manufacturers in the US is a firm proponent of the trade pact. As articulated by Jay Timmons, NAM president and CEO: “Trade agreements, with proper enforcement, really do support good-paying American jobs. Exports support approximately 6 million manufacturing jobs in the United States, and those jobs pay more than non-trade-related jobs. So while it may be easy for politicians to score a few political points by scaring people about trade and the TPP, they really should try to score some points for America instead.”
An interesting question, then, and with UK citizens’ Brexit decision as a backdrop, is if trade agreements like the TPP are economically beneficial for participating economies, why such antipathy? In a New York Times article in July, Why Voters Don’t Buy It When Economists Say Global Trade Is Good, prominent Harvard economist N Gregory Mankiw cited research from the University of Pennsylvania’s Edward Mansfield and Diana Mutz, who found that individuals’ attitudes to free trade are determined not by whether they and the industries they work in will be among the “winners” in a free trade arrangement but by their broader beliefs related to isolationism, nationalism, and ethnocentricity.
As Prof Mankiw notes, while there is a correlation between lower education levels and anti-globalization attitudes, these negative sentiments should ease as societies become more educated. However, that’s in the long run, and as of now, it appears to be bad timing that the Trans-Pacific Partnership’s final ratification step coincides with this contentious US election, making its realization uncertain and potentially disappointing its many proponents, including those in the logistics industry.
Bob Gill is the General Manager for Southeast Asia at ARC Advisory Group. Bob has a background in editing industrial trade publications including those covering Asian logistics and supply chain management.